China's Xi warns confrontation with U.S. would be disaster

BEIJING (Reuters) - Confrontation between China and the United States would be a disaster and both must respect each others' sovereignty, Chinese President Xi Jinping said on Wednesday as he opened annual talks between the world's two biggest economies.

The two-day talks being led by U.S. Secretary of State John Kerry and Treasury Secretary Jack Lew will likely take in China's currency, North Korea's nuclear program and escalating tensions between China and neighbors in the South China Sea and with Japan in the East China Sea.

Charges over hacking and Internet spying have also been a factor in tensions between Beijing and Washington. In May, the United States charged five Chinese military officers with hacking U.S. companies, prompting Beijing to suspend a Sino-U.S. working group on cyber issues. China has denied wrongdoing.

Xi said Sino-U.S. cooperation was of vital importance.

"China-U.S. confrontation, to the two countries and the world, would definitely be a disaster," he told the opening ceremony of the Strategic and Economic Dialogue at a government guest house in the west of the city.

"We should mutually respect and treat each other equally, and respect the others sovereignty and territorial integrity and respect each others choice on the path of development."

Xi added that both countries should strengthen cooperation in fighting terror and speed up talks on a bilateral investment treaty to reach an agreement at an early date.

At the talks, Kerry will raise growing U.S. concerns over China's "problematic behavior" in the South China Sea, U.S. officials said earlier.

The United States has not taken sides in the disputes but has been critical of China's behavior in the potentially energy-rich South China Sea, where the Philippines, Vietnam, Malaysia, Brunei and Taiwan have overlapping territorial claims with China. Beijing, though, views the United States as encouraging Vietnam and the Philippines to be more aggressive in the dispute.

Kerry said the United States was not seeking to "contain" China.

"We welcome the emergence of a peaceful, stable, prosperous China that contributes to the stability and development of the region, and chooses to play a responsible role in world affairs," he said.

"We have a profound stake in each others success," Kerry added. "I can tell you that we are determined to choose the path of peace and prosperity and cooperation, and yes, even competition, but not conflict."

Washington has also begun to push for China to move to a market-driven exchange rate.

Lew has said he will push China to speed up economic reforms and do more to let the yuan rise against the dollar.

"We support China's efforts to allow the market to play a more decisive role in the economy and rely more on household consumption to drive China's economic growth. Moving to a market-determined exchange rate will be a crucial step," Lew said at the opening ceremony.

The annual talks between the U.S. and China have yielded few substantive agreements, in part because relations have grown more complex with China's increasing power.

Still, U.S. officials have underscored the importance of the discussions to help ensure the relationship doesn't drift towards confrontation.